“We should be open to foreign entrepreneurs as there is a lot to learn from them” an interview with Patrick Gibbels, Secretary General, ESBA

The day after our interview, on 22 November 2017, Mr. Gibbels was awarded ‘Consultant of the Year 2017’ at the European Public Affairs Awards.

What is ESBA’s mission and what are its top priorities?

Funded in 1998, ESBA– European Small Business Alliance – is now almost 20 years old. There are roughly 4 organizations in Europe dealing with SMEs but only 2 of them are purely for SMEs: Business Europe, Eurochambres cater to both large companies and SMEs, UEAPME and ESBA deal solely with SMEs, whilst ESBA has a very strong focus on micro and small companies. Most of our members are micro businesses which means fewer than 10 employees. Statistically 92% of all EU companies are micro.

Our main priorities are better regulation (administrative burden reduction and regulatory compliance) and access to finance, as these are the two issues our members struggle with most. Our mission is to sensitize decisions makers to the specific needs of micro and small. In particular, we want them to understand that micro and small enterprises are not the same as larger companies, and not even the same as medium companies. Micro companies are very specific and they need specific legislation. Too often the Commission drafts legislation with large businesses in mind and then includes an exemption for micro companies. This is not really a solution and often puts micro companies in a separate, almost ‘second class’, category. Rather, we would like to see the “Think Small First principle”, one of the key components of the “Small Business Act” in which the Commission commits itself to think from a small business perspective first when drafting legislation, properly implemented. If this were the case, there would be no need at all for exemptions.

Europe lacks entrepreneurial spirit, compared to the US, where instead there is a strong business culture, also based on the “value of failure”. Do you agree with that? What can be done to foster a great entrepreneurial mindset among Europeans?

I believe this is true. There is a big difference, both culturally and in terms of legislation. From a cultural point of view, there is a big difference as in the US there is the perception that you cannot achieve anything without taking risks. And taking risks sometimes means to fail. This is perceived as a normal part of the entrepreneurial curve and is as such accepted: if you fail, you dust yourself off and try again, having learned from your mistakes. Statistically, second time entrepreneurs are far more successful.

Instead, here in Europe there is a very unhealthy dynamic; on the one hand business people are encouraged to take risks, to do something innovative and to compete with global markets. On the other hand, when this fails, the entrepreneur is punished. For example, in many European countries there is a long cooling off period in which companies are not allowed to start another business for 1 up to 7 years, depending on the country. Similarly, banks will be very hesitant to lend to a formerly bankrupt entrepreneur, due to the negative stigma we put on business failure. So, whilst Americans see failure as a part of the process, in Europe failure is seen as incompetency and weakness.

As an anecdote, I spoke to an entrepreneur from Silicon Valley who told me that in his circles, having failed at least once is almost considered a ‘badge of merit’. You don’t really know about business if you haven’t experienced some failure – the opposite of our European views, I would say”.

So we could say public and banking authorities in Europe do not encourage taking business risk that could lead to failure

No they do not. They do in official messages but it does not translate in their actions, in which entrepreneurs after a failure are considered a ‘persona non grata’ and have real trouble accessing bank loans. Equally, the Commission spends a lot of time promoting equity financing, such as Venture Capital and Angel Investing. However, VC’s are generally interested in businesses that promise high and quick returns – the highly innovative companies. Most of our members do not fit this category, so they are not eligible for this type of financing and thus largely depend on traditional bank loans. These (family) business are every bit as relevant as the high growth ones as they create the bulk of employment in the EU. More time and effort needs to be spent finding ways to meet their financing needs as well.

Access to international markets is a great challenge for European SMEs. What are the main reasons for this difficulty? How can we help European SMEs expand abroad?

The first difficulty is their size: they are too small to access foreign markets. There are costs, licensing, sometimes the setting up of a subsidiary. Large companies have the resources – sometimes entire departments – to deal with these things. Small businesses, in which the business owner usually takes care of everything herself, do not. Therefore, it is much more difficult for a very small company or a start-up to compete in international markets. There are also trade barriers which make it harder to enter new markets. Unless micro businesses are part of a consortium or they are experts in international trade and know where the loopholes are, it is very difficult for them to establish themselves in third markets.

Do you perceive enough support for SMEs on the part of the EU institutions such as the Parliament and the Commission? What do they miss when dealing with SMEs?

What is difficult is that the EU institutions, especially the politicians in the European Parliament (EP), do not necessarily understand entrepreneurs. The European Commission (EC) is very small compared for example to an average city’s public administration. So, considering it has to deal with 28 countries, we can safely conclude that they are understaffed. For the majority of our files, the main Directorate we deal with is DG GROW, through regular consultation procedures, expert groups and bilateral meetings. Usually the proposals coming from the EC already have an SME footprint and at least in essence and intention, they are ok for our members. The problem often arises at the EP level, where many amendments often change a Commission proposal beyond recognition. The impact assessment – an important document calculating the potential effects of proposed legislation – that came with the original proposal is no longer relevant and no new Impact Assessment is conducted. For example, in the case of the file of the General Data Protection Regulation, the EC understood very well that it could not be applied to very small companies. The proposal was written to curb large tech companies from abusing consumers’ personal data and it was considered logical that a small baker or florist does not need employ a data protection officer. However, the rapporteur in the EP insisted it apply broadly and to all businesses, regardless of their size. In such situations, we as ESBA have to fight hard to explain why this would be a mistake with many negative consequences for micro companies, who do not have the resources to comply with all this, and that does not always work. In this case, fortunately it did and micro companies were exempt. Nevertheless, our biggest challenges usually lie within the Parliament, where not all politicians know how small businesses work or what their needs are, whilst they do make important decisions affecting these small companies. It is our job to inform them. One idea would be to provide the EC with more staff to cope with all issues, although this will not be warmly welcomed by the Member States, who do not like to cede too much power to the Commission. Secondly I think there should be more time spent at the EU Institutional level, talking to stakeholder representatives, as well as individual businesses in order to better understand the real effects legislation on them. Thirdly I believe more resources should be spent on projects geared towards SMEs. The bulk of SME financing is grouped in a part of HORIZON2020 and in COSME. Compared to the overall EU budget, the budget allocated to SMEs is of microscopic proportions. SMEs are very important tax payers, so it makes sense to return this investment to them. An example of an excellent project is Early Warning Europe (www.earlywarningeurope.eu), an initiative based on best practices which aims at providing advice and support to companies in distress through interventions that can help prevent bankruptcies and its negative consequences (broken families, large debts and even suicides) before it is too late. Based on a successful project in Denmark, Early Warning can be replicated in other EU countries. By tackling Insolvency in such a way, failure as a concept can become less scary and more widely accepted. Nobody intends to fail at their business venture but when they do, it should be ok and they should be able to move on and start again. That is why the US is successful in terms of entrepreneurship and Europe is not.

Do you think migrant entrepreneurs, as more flexible, adaptable and diversified, can teach some lessons to EU local companies in terms of gaining the ability to overcome challenges and do successful business?

Yes, and to prove that we can look again at the US, which is a country built by migrants. Their whole culture of entrepreneurship is built on people from all over the world chasing a dream. In comparison, the system we have in Europe is somewhat dated and does not stimulate creativity and risk. We should definitely be open to foreign entrepreneurs from all over the world as there is a lot to learn from them. Looking outward and learning continuously will allow us to improve and look at different ways of doing business. A great way to do this is by embracing migrant entrepreneurs.

Do you believe Brexit will have an impact on EU SMEs?

Definitely. Honestly, nobody really knows what is going to happen in the near future to businesses after Brexit. The best advice we can give to our members is to sit tight and see what happens, and hopefully they will be agile enough to adjust accordingly. We are involved as an organisation in this important issue and we will shortly meet the EC’s negotiating team, to get an update on the progress as well as informing them of the needs and worries of our members. This is really all we can do for now in this regard. Generally speaking, I think large companies will be ok. Most of them have contingency plans and can afford to have a plan B, and even a plan C. Most micro companies lack the resources to prepare in any meaningful way. In any case, there will be major consequences on both sides.